Last but not least, we have Sensata with us today and Bob Hureau, who is the Chief Financial Officer. Just before we get into the Q&A, just to give you a little bit of background that we're relatively new to the Sensata story, not that there's a lot of people that aren't relatively new to Sensata story because it hasn't been public for very long. But we did recently upgrade the stock and we did that for a couple of reasons. One, we are -- we know we're early, but we are seeing some early signs of a bottoming. I should say, not a recovery, but a bottoming in the key markets that Sensata is selling into, in particular, auto. We hope in Europe at least it's within a quarter or 2 of bottoming. And then the appliance market as well and the Controls business. It's stock that had done extraordinarily well, post the IPO. I think for the first year after the IPO, it didn't do much but then really took off and then has taken a fairly lengthy pause over the course of last year. I think we downgraded the stock, maybe a year and couple months ago and then ahead of some of the challenges that are out there and we wanted to be back on board for the recovery.

But anyway, I think it's a fascinating story, there's not a lot of growth -- content growth stories out there, investable content growth story. And I think what we've heard in the last couple of days, growth has become a much greater focus for the companies. And I've said this 50x, so excuse me for reiterating this, but the type of growth that companies can control more than maybe just adding capacity into China, emerging markets and hoping demand follows, but internally-driven, maybe even R&D-driven type growth. So that's a new trend we've seen in the last couple of days. And then of course, anybody that has at least a minimum amount of outsized growth has been -- attendance in the rooms have been larger, the audience response, system questions have been more constructive, the multiples of people who are willing to trade or pay are higher. But I think in essence, what we're seeing in a strange way is maybe a byproduct of set policy. There was for a long time, last year, a search for yield and now, with tax policy going in the wrong direction, we're back to a search for growth. So that's a theme and we'll talk about this at our 4:15 round table and we hope that some or most of you can make it. I think it's pretty constructive to get all the analyst together and hear a bit of a summary today. It will be a bit more abbreviated summary than yesterday and more casual. But again, a summary nonetheless.

So I think Sensata becomes one of those stories where for it to be investable today what we need to figure out is, is that content story intact? It has been decelerating, I suppose, the last couple of quarters. So are we going to get back on track on that front? Is M&A going to back a catalyst? It certainly was for a while there, when -- on Honeywell acquisitions, asset acquisitions were announced. And you've had a management change. You've had a change at the top of Sensata. And with change, becomes a reproving process. And I think we need to see some of that as well.

Question-and-Answer Session

Scott R. Davis - Barclays Capital, Research Division

So with that, Bob, I wanted to give a little bit of backdrop and we can start to dig into the Sensata story. And maybe we can start, I want to get the audience participating as much as possible here. But maybe we can start on talking about content, and maybe talking about the markets and what you're seeing? And why content growth has slowed? And what visibility you have to when that gets back to what's considered more normal?

Robert P. Hureau

Yes, that's great, Scott. Thanks for that introduction. I'd first comment that we think we've got an incredibly growth-full story, and that's driven by content. And so maybe I start there and talk a little bit about what drives that. First and foremost, our content growth in the company is driven by the underlying regulations, the regulations in the area of fuel efficiency, emissions and safety. And those are at sound today as they have ever been. In fact, maybe they're a little bit more robust than they ever have been. And so that is not changing, and that is the fundamental underlying driver of our organic growth story. As Scott mentioned over the last few years, content has slowed from history. But in 2010, '11 and '12, we were within the 7% to 10% content growth range that we've been speaking about publicly. We provided a guidance for 2013 of content growth in the 5% to 6% range, and that's a little bit slower than where we've been historically, and it's a little bit softer than that 7% to 10% range. But it's really important to understand what's driving that, what has pushed us outside of that range in 2013. In our opinion, it really is driven by many of the macroeconomic factors. There's a couple of things that are influencing that number. First and foremost is the absolute underlying automotive production levels, particularly in Europe. We have the greatest amount of content per vehicle in the European automotive market, and that market, as you know, is down significantly over the last 2 years. And heading into 2013, we think that's going to be down another 2% to 3%. And so if you've got soft or weak underlying automotive production, content, as a result, indirectly is going to be a little bit softer than normal. And in addition, in light of the weaker economic conditions in the globe today, particularly in Europe, you also have OEMs making decisions around cash flow and cost savings initiatives and things of that nature. So from time to time, an OEM may delay the launch of a particular platform. They may delay it 1 or 2 quarters. In some cases, they may delay it a year. And that too has an influence, as an indirect impact on our content growth story. With respect to that latter item, it's just a timing issue. In other words, they still need to comply with the regulations that are out there. They still need to comply with the euro standard -- the Euro 6 standards in Europe, for example. And again, as I started off the conversation by saying, those are in place and they are as strong and robust as they've ever been. And so that gives us the confidence around saying that we still think we can grow the business 7% to 10% annually, over the long run, over the next 3 to 5 years. There may be quarters where it's a little softer than that or a little stronger than that. And in some cases, there may be a year which maybe a little softer or a little stronger. 2013 is one of those years, we're a little bit softer and outside of that 7% to 10% range. Our visibility is as good as it's ever been. We won $300 million of business in 2011. We won another $300 million of new business in 2012. And when you look at the composition of that $300 million business, we know exactly by OEM, by platform, when those new sockets are going to launch. And that helps us to give us the visibility around that 7% to 10% number. So I think the parting comment with content is we're as confident as we've ever been in 7% to 10% growth annually, over the long run, over the 3- to 5-year period.

Scott R. Davis - Barclays Capital, Research Division

Good, Bob. That's a good summary on the content side. One of the questions that really I wasn't able to ask during the quarterly call, we were traveling, and had a conflict, but SG&A cost are ramping up, kind of the same time that your content growth outlook is ramping down and there seems to be a little bit of disconnect there. Most of the time we see that opposite with most of the companies. So what -- can you help explain that?

Robert P. Hureau

Yes. So the first comment that I'll make there is the company is committed to driving earnings growth faster than revenue growth over the next 5 years. And to put a rate out there, we've talked about doubling the size of this business over the next 5 years. So as that as a backdrop, let me just remind folks what we've guided to in 2013 -- for our 2013 numbers. We guided to revenue growth at the midpoint of 3.5% and at the midpoint of earnings per share, about 7% growth. So what's in that 7% earnings growth? There are a number of tailwinds as we're heading into 2013, none of which really should be a surprise to folks who have been following the stock. We see the roll off of integration costs. There was $14 million or thereabouts of integration cost in 2013. Those are large -- 2012, excuse me. Those are largely going away in 2013. We see continued improvement in the synergies being realized on the acquired businesses. That's blowing into 2013. And we also see savings associated with the restructuring activities that we launched in 2012, that's rolling into 2013. But there are a few items that are going in the opposite direction and those include, as Scott mentioned, an increase in operating expenses, as well as an increase in research, development and engineering. So let me talk a little bit about those 2 items. The latter one first. Research, development and engineering is the life blood of this company. It's the engineering base. It is what drives content growth for this company. The more we can invest in the engineering base, the more content growth we'll have. We just need to do so in a very balanced way from year-to-year. But we are committed to increasing research, development and engineering as a percentage of revenue over time, and that's going to occur in 2013. The other area as you mentioned, Scott, is operating expenses. Absolutely, that is inching up in 2013. The reason it's inching up, as I mentioned, we have a goal of doubling the size of the business in the next 5 years. We need to make sure that we have the proper infrastructure in place to support that business as we grow it. In 2012, we left the year -- and most of those operating expenses, by the way, are rolling into SG&A. We left the year in 2012 with adjusted SG&A of around 7.5%, maybe a little bit north of that percent of revenue. That's going to inch up in 2013. But what I would remind folks is, when you look back to 2011, 2011 compared to 2013, we are gaining leverage on SG&A and we will continue to do so over the next 5 years. So there's a one-year correction, if you will, where we're making some investments to make sure that the infrastructure is there. The other thing to consider in 2012, particularly in the back half of 2012, when we saw the revenue softening a little bit, particularly in the European market, we pulled pretty hard on our operating expenses. We drove those down pretty tightly. Some of that expense just needs to come back, it wasn't sustainable. In other cases, we are making an investment in operating expenses. But again, it's all about supporting the infrastructure of the business to generate a doubling of the business in the next 5 years.

Scott R. Davis - Barclays Capital, Research Division

Okay. Let's go to the audience response, there's some questions here, and get a feel for the audience profile. Do you currently own the stock? The first 3 are, yes, but different variations of your index. I think for the most part, it's going to be either #1 or #4 for this audience. So let's vote.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Okay. About 80%, no. That is very amazingly consistent with what we've seen today is an audience that doesn't own or the ownership profile for a lot of these companies has gone down, yet the stocks have gone up. So I can't quite figure that one out. Okay, let's go to the next question. What is your general bias towards the stock right now? Positive, negative or neutral? Let's vote.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Okay. So there's a lot of mixed opinions out there and still quite a few people that don't have a view. And let's go to the next one. In your opinion, through the cycle, EPS growth for Sensata will be above peers, in line with peers or below peers? Let's vote on this one.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Wow. So they don't own the stock, there's a fair amount of people who are negative and yet the growth is above peers. So we've got to keep going with these questions because I want to get to the valuation one. Let's go to #4, and then -- which is actually going to be my next question anyway, so let's let this front-run it. In your opinion, what should Sensata Technologies do with excess cash? Bolt-on M&A, larger M&A, share repurchases, dividends, pay down debt or internal? Let's vote on this one.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Wow, that's interesting. Really? This is only the second company we've seen with such a high number of internal investment, that's a very interesting one and then bolt-on M&A and share repos split. That's interesting. So let's go to the next one. Okay, so maybe this addresses the reason why people don't own the stock, maybe they feel like the valuation is too rich, who knows? But in your opinion, what multiple of 2013 earnings -- and let's clarify this earnings number. We all agreed in the IPO process and I was involved in this conversation back when it occurred on how we were going to classify the add backs and such. So we are on a non-GAAP basis in our fact set, or first call number. So let's judge it on what the street judges on, not necessarily the GAAP numbers, just to clarify. So let's vote on this now please.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

Very similar to what we've seen with literally every other company today, right? Right down the middle. So let's do the last one then. What do you see as the most significant investment issue for Sensata? Growth margins, capital deployment or execution? Let's vote on this.

[Voting]

Scott R. Davis - Barclays Capital, Research Division

For growth. Okay, that doesn't surprise me. When you think about the valuation, it surprised me a little bit that there weren't some answers towards the higher side of that just given the lack of growth that's generally out there in the S&P and generally in the space. So that's -- so sounds like to me that you guys still have to prove -- have a little bit more proving to do on the growth site. Okay, so let's talk about M&A. I mean, the company with as high a margins and return structure as yours, kicks up a lot of cash. One of the reasons why we're very comfortable using a non-GAAP earnings basis for your company, which we normally would not be when we do this. When we go down this path, oftentimes, our answer is, no, we're not going to look at it on a non-GAAP basis. But in your case, we actually do. What do you see out there in deal pipeline? And it's so hard for us to know the opportunities set because it's such a strange fragmented industry, consolidated at a certain level and then fragmented if you want to go into little different niches. So give us an update on what you see there.

Robert P. Hureau

Yes. So let me first start by saying, again, we talked about doubling the size of the business over the next 5 years and that really was coming from 2 streams, if you will. The first is 7% to 10% organic growth on average over that time period. The second stream is $150 million to $250 million of revenue of annual acquisitions. So in the past, acquisitions, were viewed a little bit more as amplifiers, if you will. We would do them as they exist. We'd love to put the cash to use. Now they're a little bit more as part of the core strategy. It's a critical component to how we're going to get the $4 billion. That's a perfect segue because we're sitting on a lot of cash in the balance sheet right now when we expect to generate $360 million, $370 million of free cash flow next year. So we've got a lot of capital to be deployed that is not in our 2013 guidance. That being said, when we talk about making an investment in operating expenses, some of that's going into our corporate development group, our M&A function. We're doing a lot of things to increase that pipeline. And that pipeline is increasing and has grown over the last couple of years. In terms of what we're seeing, I think a couple of other things to think about in terms of the M&A strategy, we talked about this on our fourth quarter earnings call. We're widening the scope a little bit, if you will, with respect to what we're looking at. In the past, we would look at doing 1 or 2 deals per year, each one maybe with revenue -- annual revenues of around $200 million. We're looking at things now that are a lot smaller than that, maybe down to $50 million or $75 million. And we're looking at things that may be bigger than that. In addition, we're looking at things that play in adjacent markets, so there are a lot of rich opportunities that are in non-automotive -- the non-automotive sensing space. But what is still true and what is consistent is that, a, we will stay disciplined around the strategic point of view on acquisitions, the business point of view on acquisitions. So we're going to look at targets in spaces that have underlying fundamental drivers that are consistent with the core Sensata approach, and that is that these businesses are driven off of the same need for safety, efficiency and fuel efficiency. That these businesses are #1 or #2 in their space, we have a clear path to leadership. That these businesses have products that are mission-critical, if you will. That's a little bit about how we're thinking about M&A today and how it has shifted just a little bit in the recent past as Martha has taken over on the -- as the CEO for the company.

Scott R. Davis - Barclays Capital, Research Division

So that's a great segue into what my next question was going to be. And that is what changes? And I know Martha hasn't had a lot of time at the realm -- at the helm, so it's not necessarily fair to ask this. But what changes -- I mean, you just highlighted one that I think is pretty important. But what other changes do you see as far as things you're emphasizing or strategy or otherwise under her leadership?

Robert P. Hureau

Yes. I don't think the changes are big and bold. I don't think there's major differences. Some have viewed Tom as perhaps being more focused on cost. He certainly was the innovator of our best cost production initiative, which pushed all of our manufacturing to low cost parts of the world, and that's been tremendously successful for the company. But that being said, the 2 certainly have grown up in the business together for many, many years, and so there are many similarities, more similarities than differences. Without pointing to these as stark differences, I do think it was very clear what we articulated around the vision for the company, articulated on this last earnings call, and that is doubling the size of the business, growing earnings faster than revenue and widening the scope on M&A to get that capital deployed.

Scott R. Davis - Barclays Capital, Research Division

Okay, fair question -- or fair answer, I'm sorry. Let's open up to the audience then. Go ahead, Mike. That's -- for those of you who don't know, Mike Stein, does an awful lot of work in Sensata for us.

Michael A. Stein - Barclays Capital, Research Division

I want to get an update on what you're seeing in the end market? I mean, the content growth in 4Q was pretty -- it was pretty good, but the overall business was down. I think, you made a comment that a third-party may have had overestimated production rates. Just wanted to see what you're seeing kind of early in 2013? And then what you think actually happened in the end of the year there in European auto?

Robert P. Hureau

Yes. So there's no doubt the fourth quarter was a weak market for the end -- a weak market -- or weak environment for our end markets particularly on the Sensors side of the business and particularly Europe. But I would say that in the fourth quarter, there were a couple of different areas that were weak in the end market. Certainly European automotive, North American heavy vehicle, the Class 5 through 8 [ph] trucks, they were down significantly. And even in Asia, Asia was down significantly in the fourth quarter. That being said, with respect to the European automotive market, third parties, as well as Sensata, we have called that down, a 2% to 3%, 2% to 4% in 2013. Now the -- I think the interesting thing here is that in the first quarter, it's down -- first quarter of 2013, we think it's going to be a down a lot more than that, more like 10% or 11%, and that's consistent with the third-party forecasters. And so I think when we thought about our 2013 guidance, the fact that the European market -- and that's the market where we have the greatest content per vehicle, by the way, that market was pretty dynamic. When you think about '13, much of the growth that you're going to see in aggregate is back-end loaded. And I think those 2 things, have us being a little bit cautious with respect to our guidance. Now with respect to Q1, we were 90% filled 1 week or 2 ago when we did the earnings calls. So we've got a high degree of confidence around our numbers for the first quarter, at least top line numbers. There's nothing that we're seeing right now with any of the early data set coming out of the month of January that would have us overly optimistic above our guidance nor pessimistic. Registrations in -- automobile registrations in Europe in the month of January were down about 8.5%, that's not all that different with a down 10% Q1 market. So the North American automotive market was up nicely. We expected that to be up a little bit in Q1 and up a little bit for the year. So nothing right now coming out of the early days of January and February that's inconsistent with our perspective on Q1 or the year at this point.

Scott R. Davis - Barclays Capital, Research Division

Go ahead, [indiscernible].

Unknown Analyst

Can you talk about the non-auto businesses and maybe give us a little update on what you're seeing in the industrial businesses, specifically HVAC and kind of how that looks currently? And then how you're expecting that to trend in 2013 [ph]?

Robert P. Hureau

Yes. So those end markets are served primarily by our Controls business, which is about 30% of the overall business. And I think as some folks know, the overall end markets there are much more diversified. They include appliance, they include HVAC, telecom, datacom, defense, et cetera. With respect to those markets, again, highly filled in the first quarter, so confident with our projections for Q1. For the year, exclusive of a small tuck-in acquisition that we completed in the fourth quarter, we think the Controls business grows at low-single digits in 2013. Right now, I would say we're encouraged by some of the data that we're seeing coming out of the early days of December, January and February. One of the indices that correlates reasonably nicely with the Controls business is the PMI index, and that's certainly moving in the right direction in the last quarter. So that's an encouraging third-party data point as well. So feeling really good about Q1 and encouraged for the balance of the year at this point of the early days in 2013.

Scott R. Davis - Barclays Capital, Research Division

I'm sorry. Let this gentleman go first and then we'll come to the middle.

Unknown Analyst

I apologize if -- just because I'm new to the story. But it seems like the M&A focus has been ratcheted up recently, that's at least the way it comes across. And I just wonder with a company with a 7% to 10% organic growth that's highly visible, I just wonder why the emphasis on M&A? It seems maybe you risk losing focus on that organic story if you're too focused on M&A. And jump forward 5 years, you dilute down that organic growth because you are adding new business lines.

Robert P. Hureau

Yes. So let me address the latter question first. We don't think so because what's really important when we look at M&A, as I mentioned, we're looking at targets that had the same underlying fundamental drivers as our core business, right? So we're not -- look, if we're looking in nonautomotive sensing space, we're not looking for something that's going to grow at 2% to 3%. We're looking for something that has the same content growth story, things that are driven by the need for greater efficiency, things that are driven by the need for greater safety. And so we don't think we're going to dilute that organic growth story by way of our M&A strategy. I would say in the past, we did view it as a bit more of an amplifier. We're now at a point where there's significant cash flow being thrown off of this business. As I mentioned, in the absence of a deal or putting our foot down on the share repurchase program, we'd be sitting at the end of 2013 with $800 million of cash on our balance sheet. So we've got significant capital that we can put to use here. We think we can put to use smartly by looking at these targeted M&A opportunities.

Unknown Analyst

I actually have a related question in any event. I don't have numbers in front of me, but my recollection of when I read up on your company is that you have significant debt and you keep talking about you have significant cash. So first, can you clarify what your financial position is?

Robert P. Hureau

Yes. Well, yes, for sure. I guess significant is all relative. So we are sitting with $1.8 billion of debt. On a net debt basis, we're at about 2.7x levered. Now if you go back in time, there were a few years where we were over 7x levered. So 2.7x feels pretty loose to me. But we are, we think that 2 to 3x is a good leverage ratio to have on a net basis. So we're not overly concerned right now with the degree of debt. And oh, by the way, the debt we have has really attractive rates, under 4% on our $1 billion term loan. So we think that's a cheap capital.

Unknown Analyst

So -- and not being very familiar with your business, but it does sound like your end markets are very automotive-related and therefore, sensitive. And therefore, my assumption is there is cyclicality in the revenue line despite the long-term secular opportunity you described. As the CFO of a company that -- in a business that it sounds like it has operating leverage, combined with the financial leverage that you described, why would you not sort of address reducing either the operating levers or the financial leverage? Because the combination of the 2 gets a lot of companies in trouble.

Robert P. Hureau

Yes. So, if you recall, if you go back to 2008 and 2009, the depths of the global economic crisis, we were over 7x levered, we didn't have any issue with cash flow. So we're extremely confident in the cash flow generating capabilities of the company. We have really high margins, 30% EBITDA is on the core margins. We have a low CapEx, only 3% to 4% capital expenditures on an annual basis. And we've got a fantastic low cash tax rate, something that runs in the 4% to 6% of adjusted EBIT range. So I'm not particularly concerned with the amount of leverage that we're carrying today. Again, at 2.7x, we could even lever up a little more if we needed to, although I don't see the need right now. So that's answering the financial leverage piece. With respect to the cyclicality, sure, there is some. 2012, overall, the end markets were down, but we grew revenues by 7% due to the content growth story. So we're pretty comfortable with the financial and the business model that we have and particularly around the leverage.

Unknown Analyst

If you are this cash flow generative, how did so much debt come about? Was it because of the acquisitions you made?

Robert P. Hureau

It initiated with the initial buyout by Bain back in April of 2006, that was part of the leverage buyout.

Scott R. Davis - Barclays Capital, Research Division

Next question, please? Gentleman in the back, go ahead.

Unknown Analyst

I don't know you very well either, but I mean, looking at the returns you're getting, your margins are very high, but you're supplying the kind of an auto business. So I mean, the question is, those guys are obviously canny of watching over their suppliers. So how do you get that margin or sustain it? And two is, as your technology becomes more and more adopted, isn't there a risk it becomes more commoditized over time putting pressure potentially on your returns?

Robert P. Hureau

Yes. So 2 questions, how did we get the high margins and then I guess how do it protect from commoditization? How we get the high margins? I think a lot of that came from the fact -- from Tom with this whole BCP or best cost production initiative. So over the last 10 or 15 years, we've been pushing our manufacturing operations all to low-cost parts of the world. 90% of what we produced today is coming out of a low-cost region. That's certainly one means by which we get these high margins. The second is it's not a very capital-intensive business. As I said, 3% to 4% of revenue in terms of annual CapEx, a small piece of which is maintenance, the remainder is capacity expansion or cost reduction. So those 2 things and again a low cash tax rate generate great adjusted net income indices for the industry. Now how do we prevent it from being commoditized, I just think the very nature of what we do, these are highly engineered sensors. We'll talk on the Sensors side of the business, right? We're not supplying sensors that turn lights off and on, if you will. These are products that are highly engineered. They're going in mission-critical applications. They're in the engine. They're in the exhaust system. They're in the braking system. So there's a lot of vibration. They have to operate to low tolerances. And they have to operate over a very long time period -- over the life of the vehicle. So it's really hard to do that. And there are a couple of other big competitors out there that we compete with, that do it well as well. But it's not something that is easily -- that can be easily replicated on the scale in the global reach that we have today. And that gives us a leg up from competition and helps from keeping it from being a commodity.

Scott R. Davis - Barclays Capital, Research Division

Okay, next question? Go ahead, Mike.

Michael A. Stein - Barclays Capital, Research Division

Maybe a related question. What are you seeing in price in 2013? Particularly related to the cost decelerators with some of your bigger customers. If the volumes don't come back to kind of make up for that, how do you see that flowing through margins? And also on the other side of that, what are you seeing in terms of wage inflation in emerging markets? And then how do you see that impacting the business?

Robert P. Hureau

Yes. So generally, in our business, particularly on the Sensors side of the business, we do see annual price downs. They tend to be 1.5% to 2% per year, and that's a weighted percent for the whole company, but it's largely on the Sensors side. Now that's a little bit less than some other system suppliers in the automotive space, but that's something that's very consistent. If you go back over the last 10 years, that hasn't changed. We don't see that changing dramatically in 2013. To your point, we offer those price concessions, if you will when we enter into agreements with the automotive OEMs or the tiers, but it is in exchange for a number of things. It's typically in exchange for a multiyear contract. It's typically in exchange for certain volume levels that increase over time. So certainly, OEMs that are influenced by the weak European economy right now, we will be looking at those contracts to make sure that the pricing is appropriate. But there's not a big change right now in terms of the overall pricing in 2013 that we've assumed. Certainly, there would be instances of individual agreements where the price concession wouldn't take place because the volumes are off. With respect to your second question, that was labor inflation particularly in China, I think it was. Certainly, there is wage inflation there. It's running at 12% or 15% a year. But importantly, direct labor is a really small component of our overall cost of goods. In fact, direct labor, I think, runs less than 5% of revenue. So even at 12% or 15% annual increases, when it's that small of a piece of the component of cost of goods, and in fact, when it's starting at a really small or really low base, it would take a long time for China to be -- for us to view China as not to be in that market from a competitive standpoint.

Michael A. Stein - Barclays Capital, Research Division

But would you then consider moving to Vietnam or other lower cost regions if it became an issue?

Robert P. Hureau

I'm not sure that we would actually move out of China. But as we think down the road and we think about doubling the size of the business, absolutely, we're exploring other parts of the world that might be the next generation of low-cost markets for us, and that would include some of those markets.

Unknown Analyst

Just a follow-up because I'm not following the thought here. I would think that you moved your manufacturing to low-cost location to take advantage of the cheap labor and you're saying that direct labor is a fraction of your -- so what is the advantage of moving to low cost?

Robert P. Hureau

Yes. So it was initially labor, right? So when we were manufacturing in the U.S. it wasn't so low cost. So when you move to China, let's say, and not only do you take evasion of the labor, right? It becomes a much lower cost then of your overall cost of goods. But going to China or other parts of the world, there are a lot of other advantages as well. We have great relationships with the Chinese government, in the provinces that we do business. With that comes a number of other benefits with respect to tax rates and concessions around constructing buildings and things of that nature. So it's not solely a labor play, it's an all-in lower-cost market play.

Unknown Analyst

And that was a related question I had which is, why do you have such a low cash tax rate and how sustainable is that? What are the benefits offered [indiscernible]?

Robert P. Hureau

We have a great tax director. We have a fantastic structure, and I won't get into it in a lot of detail. But we are -- we have a Dutch parent and there are a number of benefits that come along with that including being able to dividend taxes up to our parent, tax-free. There are a whole host of reasons, but it all has to do with the original structure that we set up at the time of the original buyout.

Unknown Analyst

So it sounds like the low tax rate is sustainable in the future?

Robert P. Hureau

We think it's sustainable. When we do our long-range planning which is over a 5-year period of time, we look at that and we look at what we would do if we didn't do anything and then we look at what are -- what the levers that we can pull in order to maintain that. And we're confident that we'll be in that 4% to 6% band over that long-range planning horizon. We were below that in 2011 and 2012. Now that's inching up in 2013 a little bit, but well within that band.

Unknown Analyst

And if I can go for one more, I'm sorry. The -- help us understand, you mentioned that your products especially the Sensor is going to mission-critical application, so they are not -- they don't lend themselves to commoditization like the classic mechanical auto component product. How do you -- how did you develop that expertise? And is it that you don't really compete with even the captives like an Infineon or DENSO? Infineon is not a captive, but a DENSO or the obvious alternatives out there. Or is it that what you do nobody else does and cannot do?

Robert P. Hureau

Yes. So we've been in business since 1960. So we've been around a long time. This company was founded in the engineering and materials space. So we've got a lot of great engineers and a lot of great technology. So I think that's the first reason, right? We weren't created in 2006 when Bain purchased us, so that's the first thing. Yes, the major sense -- excuse me, the major sensor competitors that are out there include Bosch and DENSO, and they have a very different strategy. They are a system player that incorporates their sensors. That works for them in some cases, and that works against them in some cases. As an example, they're not going to sell to Conti, with whom they compete on a system level. In addition, some OEMs actually prefer to de-content their system. They would rather have a system and a sensor player selling those parts in separately for supply chain management purposes. So it works for them and it works against them in some instances.

Scott R. Davis - Barclays Capital, Research Division

Take the last question, Mike.

Michael A. Stein - Barclays Capital, Research Division

I guess just to wrap it up, getting back to M&A. Are you in to make any cycle bets on some of your more bottoming end markets, things like truck or some of the more deep cyclical autos? I mean, and how does that relate -- how is the interchange there with your hurdle rates on getting deals done?

Robert P. Hureau

Yes. So I'm not going to get explicit around which end markets we're going to make a bet on. I think M&A is really defined by those criteria that I talked about before. It is fair to say that when you look at some of these end market, they do feel like that they're at the bottom, right? I think Western European SAAR in January was the 13th consecutive month where that SAAR rate was below the bottom level in 2008. That's a pretty low point. So I think that is fair to say that we are at/or near certain lows right now in some of the end markets that we play. And then what was the second question or the second part of it?

Michael A. Stein - Barclays Capital, Research Division

How do you think of that in terms of how you look at the return on deals? And your ability to model sharply inflecting markets?

Robert P. Hureau

Yes. So I don't think that changes the things around hurdle rates. I think we want to stay pretty disciplined there. I think we've demonstrated and certainly in the 4 deals that we've done most recently that we can get great returns if we can deploy the capital in a pretty responsible manner here. So again, we're anxious to get that cash deployed either towards M&A or the buyback program. So again, don't want to make any calls on which bets we're willing to make at this point.

Scott R. Davis - Barclays Capital, Research Division

Okay. We're running out of time. And thank you, Bob and thank you for your interest and your questions everybody.

Robert P. Hureau

Great. Thank you very much. I appreciate it.

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